The European Banking Authority (EBA) in the Report on Investment Firms, Response to the Commission's Call for Advice of December 2014, EBA/Op/2015/20 (p. 19) observed:
"Regarding the activity of placing financial instruments without a firm commitment basis, this category of investment firm is only implicitly included in the current CRD IV framework because the activity of placing financial instruments without a firm commitment basis (MiFID A7) is not explicitly mentioned. An investment firm performing this activity for another entity actually performs only a 'sales' function in that the investment firm agrees to sell the financial instruments of a third party to the public, without the investment firm having an obligation to buy any of the financial instruments that could not be sold to the public. The prudential risk faced by the investment firm itself while performing this activity is therefore limited (although this is not necessarily the case for the firm's clients). Given the more limited prudential risk profile of this activity, one would expect that it deserves a less than full CRR prudential treatment as operated under Article 29 of the CRD for this particular type of investment firm. This is, however, not the case. By default, such an investment firm is subject to the highest initial capital requirement of EUR 730 000 under Article 28 of the CRD, which seems irrelevant given the absence of risk to the firm and its customers. Level playing field issues arise too, since only minor differences actually distinguish placement agents from firms transmitting (or executing) orders, in that their service is connected to the issuance of financial instruments as opposed to the secondary market sales of these instruments."
Question 1 [Last update: 10 October 2016]
Article 38(1)(a) of the MiFID II Delegated Regulation states that "investment firms which provide advice on corporate finance strategy, as set out in Section B (3) of Annex I, and provide the service of underwriting or placing of financial instruments, shall, before accepting a mandate to manage the offering, have arrangements in place to inform the issuer client of the various financing alternatives available with the firm". What are "the various financing alternatives" to be considered?
The various financing alternatives may be limited to those appropriate to the issuer client's needs. However, they should not be limited to financing alternatives that constitute investment services; for example, loans or extension of credit facilities shall be included if appropriate and offered by the firm. The firm should inform the issuer client which financing alternatives have not been considered, including financing alternatives not offered by the firm, with a short explanation of why they were discounted.
Questions and Answers, On MiFID II and MiFIR investor protection topics, 10 October 2016 ESMA/2016/1444, Underwriting and placing [Last update: 10 October 2016]